Correlation Between IShares Transportation and First Trust
Can any of the company-specific risk be diversified away by investing in both IShares Transportation and First Trust at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining IShares Transportation and First Trust into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between iShares Transportation Average and First Trust Nasdaq, you can compare the effects of market volatilities on IShares Transportation and First Trust and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in IShares Transportation with a short position of First Trust. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Transportation and First Trust.
Diversification Opportunities for IShares Transportation and First Trust
0.58 | Correlation Coefficient |
Very weak diversification
The 3 months correlation between IShares and First is 0.58. Overlapping area represents the amount of risk that can be diversified away by holding iShares Transportation Average and First Trust Nasdaq in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on First Trust Nasdaq and IShares Transportation is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on iShares Transportation Average are associated (or correlated) with First Trust. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of First Trust Nasdaq has no effect on the direction of IShares Transportation i.e., IShares Transportation and First Trust go up and down completely randomly.
Pair Corralation between IShares Transportation and First Trust
Considering the 90-day investment horizon iShares Transportation Average is expected to generate 1.1 times more return on investment than First Trust. However, IShares Transportation is 1.1 times more volatile than First Trust Nasdaq. It trades about 0.12 of its potential returns per unit of risk. First Trust Nasdaq is currently generating about -0.19 per unit of risk. If you would invest 7,067 in iShares Transportation Average on November 18, 2024 and sell it today you would earn a total of 189.00 from holding iShares Transportation Average or generate 2.67% return on investment over 90 days.
| Time Period | 3 Months [change] |
| Direction | Moves Together |
| Strength | Weak |
| Accuracy | 100.0% |
| Values | Daily Returns |
iShares Transportation Average vs. First Trust Nasdaq
Performance |
| Timeline |
| iShares Transportation |
| First Trust Nasdaq |
IShares Transportation and First Trust Volatility Contrast
Predicted Return Density |
| Returns |
Pair Trading with IShares Transportation and First Trust
The main advantage of trading using opposite IShares Transportation and First Trust positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Transportation position performs unexpectedly, First Trust can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in First Trust will offset losses from the drop in First Trust's long position.The idea behind iShares Transportation Average and First Trust Nasdaq pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
| First Trust vs. First Trust Nasdaq | First Trust vs. First Trust Nasdaq | First Trust vs. First Trust Nasdaq | First Trust vs. First Trust Nasdaq |
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Diagnostics module to use generated alerts and portfolio events aggregator to diagnose current holdings.
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